Tanker Market Overviewby

Erik.Ranheim@INTERTANKO.comSenior Manager Research and Projects

Oslo 18 October 2011

• Very weak market, uncertain/weak fundamentals

• Oversupply of tankers, mainly hidden– slow steaming (ballast)– Lowering of C/P speed, why 14 knots?

– Suez Canal less used– Piracy effect – longer routes/inefficiency– Waiting

• Increased Middle East export has not helped freight rates

• High oil price despite weakening fundamentals

The state of the Tanker Industry

Tanker MarketWorld GDP and oil demand change

Source: Baltice: Exchange/BITR

$/day

Rates improved by slow steaming/backhauls

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000VLCC AG-Japan, 250,000 ts

Suezmax Wafr-US 130,000 ts

Aframax N Sea-UKCont, 80,000 ts

Product Caribs-US, 38,000 ts

Comparative Earnings 2011 Jan-Oct, 280,000 cargo ts

Source: Poten & Partners

$/day

Rates improved by slow steaming/backhauls

Series1

-10,000

-5,000

0

5,000

10,000

15,000

20,000Chart Title

Series1

Round trip Round trip Triangular voyage

No piracy deviation With piracy deviation With piracy deviation

Full speed Market speed Market speed

Ras Tanura – LOOP Ras Tanura – LOOP Ras Tanura - LOOP - Bonny - Ningpo - Ras Tanura $1,120 $3,900 $17,600

Full speed: 15.5 kt laden / 16 kt ballastMarket speed: 14.0 kt laden / 13.5 kt ballastPiracy deviation: 1,150 nm

Tanker MarketVLCC newbuilding prices and break even rates

m $ $/day

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

4078

7

60

80

100

120

140

160

25,000

29,000

33,000

37,000

41,000

45,000Break even rateNewbuilding prices

68,000 dwt47,000 dwt

Source: Clarkson Shipyard Monitor

215 VLCCs

29

18

29

54 55 60?

31

Number aboved bars = deliveries of VLCCs

41

Tanker Demand

Tanker MarketWorld GDP and oil demand change

Source. IMF/BP/IEA/Fearnleys

%

Oil/tanker demand correlates with Economic growthIMF forecast positive growth – but there is great uncertainty

Because the extra barrel is taken from the Middle east, tonne-miles growth is stronger

-10

-5

0

5

10

15

GDPOil demandTonne miles

?

Tanker MarketOil price and freight rates 1970-2011

$ per barrel

0

20

40

60

80

100

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Nominal price Arab Light

Real price Arab Light

Nominal freight rate AG-WestReal freight rate AG-West

Deflated by the Consumer Price Index (USD)CPI* index 1982-84=100

Middle East oil production

mbd

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 1116

17

18

19

20

21

22

23

Year

Monthly VLCC fixtures by l aycan

number

2004 2005 2006 2007 2008 2009 2010 20111,100

1,150

1,200

1,250

1,300

1,350

1,400

2011 is a projection based on 9 monthsSource: MST Geneva

Tanker DemandIncrease in world oil demand

Based on data from IEA

mbd

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

-2.6

-2.2

-1.8

-1.4

-1.0

-0.6

-0.2

0.2

0.6

1.0

1.4

1.8

2.2

2.6

3.0

Rest of world** Middle East* USA

China World Biofuels demand

Reported VLCC Fixtures by Charterer ‐ 2009 ‐ 2011E

Source: Poten & Partners

Number

2009 2010 20110

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Non-Chinese Day Harvest PeteroChina UNIPEC

+15.9% +9.8%

Tanker DemandOil balance: production - consumption

Source: INTERTANKO / IEA

mbd19

90

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

-15

-10

-5

0

5

10

15

20

Middle East

FSUAfrica

SC America

ChinaN America

Europe

Asia - Pacific ex China

Oil surplusareas i.e.exportingareas

Oil deficitareas i.e.importingareas

Tanker DemandSeaborne Oil Trade and Middle East Oil production

Based on Fearnleys/IEA

mbd 000 bn tonne-miles

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

9

12

15

18

21

24

4,000

5,800

7,600

9,400

11,200

13,000

Middle East Oil Prod mbd

Tonne miles

Asia 80% dependent on Middle East, Europe 18% and US 17% Some 15 mbd crude oil through Hor-muz 2010

Tanker DemandMiddle East Oil production Jan-2000 to Aug-2011

Based on Fearnleys/IEA

mbd01

/01/

00

01/0

7/00

01/0

1/01

01/0

7/01

01/0

1/02

01/0

7/02

01/0

1/03

01/0

7/03

01/0

1/04

01/0

7/04

01/0

1/05

01/0

7/05

01/0

1/06

01/0

7/06

01/0

1/07

01/0

7/07

01/0

1/08

01/0

7/08

01/0

1/09

01/0

7/09

01/0

1/10

01/0

7/10

01/0

1/11

01/0

7/11

18,000

19,000

20,000

21,000

22,000

23,000

24,000

Primo Sept 2009

$5,000/day

Source: IEAPrimo July 2003 VLCC AG-Japan $7,000/day

8 July 2003 VLCC AG-Japan $14,000/day

Primo Jan 2007

$27,000/day

Primo July 2008 $181,600/dayEnd April

2004 $61,600/day

20 July 2006 $87,000/day

Mid Jan 2003

$91,000/day

24 Nov 2001

$92,000/day

Primo Sept 2009

$5,000/dayYearly

averageME oil

Produc-tion

ME oilProduction

Mid Oct. 2011negative VLCC

Rates

Tanker Supply

Tanker SupplyTanker fleet development

Tanker fleet increase 2003-2013 some 72%

m dwt number

Assumed orderbook August 2011, include chemical tankers

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

275

329

383

437

491

545

3,300

3,920

4,540

5,160

5,780

6,400

dwt Number

Average age tanker fleet above 10,000 dwt

Based on LRFairplay

Years

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

6

8

10

12

14

16

Tanker SupplyTanker phase out, deliveries, scrapping tankers 10,000 dwt

+ balance assuming various demand increasesm dwt

Under above assumptions, 6% growth necessary to regain market balance by 2014 or more removal of DH tankers

-02 03 04 05 06 07 08 09 10 11 12 13 14 15-25

-5

15

35

55

75

95Last phase out

Deletions

Delveries

Surplus zero trade growth

Surplus 2.5% trade growth

Surplus 4% trade growth

Surplus 6% trade growth

year

Assumed market balance end 2008

Minus 2% growth in 2009 and the above scenarios later

Assumed removal of double hull tankers

Suezmax phase out, deliveries, scrappingm dwt

-02 03 04 05 06 07 08 09 10 11 12 13 14 15-4

0

4

8

12

16

20

24

Max phase out

Deletions

Delveries

Surplus tonnage zero demand increase

Surplus tonnage 2.5% demand increase

Surplus tonnage 4% demand in-crease

Surplus tonnage 6% demand in-crease

year

Assumed market balance end 2008

Tanker Values

VLCC value - 15 years old and scrap value

Source: Clarkson/SIW

m $

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

4081

7

0

10

20

30

40

50

60

Conclusion

ConclusionsOil demand, tonne-mile, and tanker fleet indices

Source: IEA, Fearnleys, INTERTANKO

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

95

100

105

110

115

120

125

130

135

140

145

150

155

160

Oil demand index

Tonne miles crude tanker index

Tanker fleet index

Conclusions Slowing Growth, Rising Risks

• Fundamentals uncertain, weakening

• Political risk and debt problems are aggravating - lack of political leadership threatens recovery in the US and Europe

• Chinese growth is threatened partly by weakening world economy but also by a domestic debt burdened industry as well as social unrest

• Surplus of tankers will continue to increase

Strategic tanker consideration

• Tankers at the bottom of a cycle

• Currently high oil prices despite weakening demand

• Long term high oil prices will dampen growth in world economy and a stimuli to fuel saving and to switch to other sources of energy

• Substantial opportunities for both owners and charterers with regard to vessel speed

• Costs reduction needs carful risk management